Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Amazon's Need for Speed

Who needs Harry Potter? (Nasdaq: AMZN  ) came through with another monster quarter last night, silencing critics who figured that the company's third-quarter performance had been inflated by sales of Scholastic's (Nasdaq: SCHL  ) final entry in the Harry Potter series.

Yes, Amazon continues to roll along nicely. Net sales during the holiday quarter soared 42%, to $5.7 billion, well ahead of Wall Street's expectations of a 35% top-line spurt. Profits more than doubled to $0.48 a share, in line with analyst profit targets.

No one is doubting the viability of Amazon's model. The company is now profitable year-round. It closed out the year with $1.2 billion in free cash flow. Since no one is shocked at Amazon's profit-milking prowess, let's focus on what's really been blowing me away over the past two years: accelerating growth.

Sales Growth (YOY)

Q1 2006


Q2 2006


Q3 2006


Q4 2006


Q1 2007


Q2 2007


Q3 2007


Q4 2007


See the trend? With the exception of the first quarter of 2007, the year-over-year net sales growth rate in each quarter has clocked in faster than the previous quarter. The last time that Amazon was growing this quickly, it was 2000 and Amazon was working off a considerably smaller base.

OK, so maybe the plunging greenback helped prop overseas results higher. If it wasn't for favorable exchange rate translations, net sales for the period would have inched just 37% higher. Still, that's blazing speed when you consider that smaller companies like RedEnvelope (Nasdaq: REDE  ) , Bluefly (Nasdaq: BFLY  ) , (Nasdaq: OSTK  ) , and (Nasdaq: DSCM  ) are all growing slower.

The trend is likely to slow in 2008. Amazon is looking for sales to climb just 26% to 33% higher this year. Still, it seemed two years ago as if even those growth rates were lost forever.

Amazon has clawed its way into consumer fancy through its widening collection of offerings, partnering with third-party vendors, and the success of its Prime membership, where active shoppers pay $79 a year for free two-day shipping (and heavily subsidized overnight deliveries).

Did Amazon do enough to excite the market? Not really. Shares dipped after last night's report, even though warts are hard to find beyond a dip in domestic operating margins year over year and overanxious investors upset that the company simply met expectations. Hopes run high when you're a blue chip trading at what is now 66 times trailing earnings.

My advice is to approach continued weakness as a potential entry point. Amazon's guidance has been historically conservative. Yes, last night broke a streak of five straight quarters of exceeding profit expectations, but Amazon continues to humble Wall Street when it comes to net sales.

Amazon's getting bigger with every passing quarter, and I don't see it slamming on the brake pedal anytime soon.

For related Foolishness:

Read/Post Comments (0) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 567055, ~/Articles/ArticleHandler.aspx, 10/21/2016 11:49:06 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
AMZN $818.99 Up +8.67 +1.07% CAPS Rating: ****
BFLY.DL $0.00 Down +0.00 +0.00%
BLUEFLY, INC. CAPS Rating: No stars
DSCM.DL $0.00 Down +0.00 +0.00%, inc… CAPS Rating: *****
OSTK $14.45 Down -0.35 -2.36% CAPS Rating: *
REDE.DL $0.00 Down +0.00%
RedEnvelope, Inc. CAPS Rating: No stars
SCHL $38.26 Down -0.06 -0.16%
Scholastic CAPS Rating: No stars